A settlement agreement is a legally binding contract, but no two are identical — the exact clauses depend on your circumstances, your employer, and what has been negotiated. That said, most agreements draw from the same core set of terms. Here's what typically appears, and just as importantly, what a settlement agreement cannot take away from you.
Key takeaways
What you need to know
- A settlement agreement typically covers a payment in exchange for waiving your right to bring specified employment claims.
- It will usually also address things like your reference, confidentiality, and any restrictions on what you can do after you leave.
- Not everything can be waived — accrued pension rights and personal injury claims that have not yet arisen are among the exceptions.
- The exact clauses vary between employers, so it's worth reviewing your specific agreement rather than assuming a standard template has been used.
- Independent advice is a legal requirement — without it, the agreement is not binding.
The core elements of a settlement agreement
While every agreement is drafted for the particular circumstances, most settlement agreements are built from the same building blocks, and will typically contain some or all of the following common provisions:
| Element | What it means |
|---|---|
| Notice and termination date | The agreement should set out the arrangements regarding your notice period and the end date of your employment. |
| Termination payment | The financial amount your employer is paying you, which may include notice pay, holiday pay, redundancy pay and/or an ex gratia payment. See our article on how figures are calculated for more detail. |
| Waiver of claims | The list of legal claims you are agreeing not to pursue — these can include unfair dismissal, discrimination, unpaid wages and breach of contract. |
| Reference | An agreed form of words your employer will use if contacted by a future employer, sometimes attached to the agreement itself. |
| Confidentiality | This clause can include restrictions on discussing the terms of the agreement, and sometimes a non-disparagement clause covering negative comments about your employer. |
| Restrictive covenants | Confirmation or variation of any post-termination restrictions, such as not working for a competitor for a defined period. |
| Return of property | A requirement to return items such as a laptop, phone, access cards or documents by a specified date. |
| Announcements | The agreement may include agreed wording for any internal or external announcement about your departure. |
| Warranties | These are statements that you confirm to be accurate at the time of entering into the agreement. Whilst precise warranties can vary considerably, they may include things like confirmation that you have not received an offer of employment or confirmation that you have not committed any material breaches of your employment contract that would have entitled your employer to summarily dismiss you. |
| Independent advice | Confirmation that you have received independent advice, alongside any contribution towards your legal fees that your employer is making. |
"Every settlement agreement is different. Understanding what you are agreeing to — and what you are giving up — is exactly what independent advice is designed to help with."
What can't be included
A settlement agreement is powerful, but it is not unlimited. Certain rights usually cannot be waived, regardless of what the document says, such as:
| Exception | What it means |
|---|---|
| Accrued pension rights | Rights you have already built up under an occupational pension scheme are generally unaffected by signing. |
| Personal injury claims that have not yet arisen | A waiver of personal injury claims that have not yet arisen (in other words, claims for future injuries) would generally not be effective. |
| Certain statutory rights | Certain statutory rights (such as the right to statutory maternity pay and statutory paternity pay, for example) have an absolute restriction on contracting out, meaning they cannot be compromised by any means. |
This is one of the reasons independent advice is a legal requirement rather than a formality — your adviser's role includes checking that the waiver in your agreement is properly limited to claims that can lawfully be waived, and flagging anything that goes further than it should.
Are the terms negotiable?
Many of the terms mentioned above are not fixed. The payment itself is often the starting point for negotiation, but clauses such as the reference, the announcement wording, or the length of a restrictive covenant can also be discussed. Whether there is room to negotiate — and how much — depends on your specific circumstances and the strength of your position.
Our settlement agreement checklist covers a selection of practical points worth reviewing against various clauses before you sign any agreement.
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Get in touch →This article provides a high-level overview for general information purposes only and does not constitute legal advice. It should not be relied upon as a substitute for specific legal advice tailored to your individual circumstances.
Should you choose to formally instruct us, legal services will be provided by Nexa Law Limited. Employment Settlement Solicitor is a trading name of RJB Legal Services Ltd, a limited company registered in England and Wales with number 17353836. RJB Legal Services Ltd does not provide legal advice. RJB Legal Services is a consultant practice of Nexa Law Limited, a limited company registered in England and Wales with number 10209198, which is authorised and regulated by the Solicitors Regulation Authority under SRA number 633024.